I AM TARGET TUESDAY
TYPES OF INVESTMENT
Investment can simply be defined as money committed to a venture for future income. The key word here is FUTURE INCOME.
A lot of people make the mistake of mixing up these 2 terms 'savings' and 'investment' they are 2 different things.
Savings is liquid, very low risk and it is usually money put away for immediate / short term need i.e rent, school fees, celebrations etc. Money put in savings, should be tied to a future need or better still save up funds to make up a lump sum for a future need. However, while this money in being saved, you can earn a minimal return and also increase savings amount. Types of savings includes:
SAVINGS ACCOUNT (offered by many commercial banks @ interest range of 1-3%). Tip: At SCB, we offer a hybrid savings account called Esavers that pays interest rate of up to 7%
FIXED DEPOSIT: The fund still resides in the bank however it is separated for an agreed period and agreed interest rate usually 1-15%
TREASURY BILLS: are not very liquid savings but can be redeemed before its maturity. Interest rates in time past used to be very attractive however it has rates have slumped in recent times but I am sure that like all commodities, rates will pick up again.
Investment on the other hand is for the long term and should be for medium to long term savings 1year minimum ( however note that some investments can yield good returns in a short time I.e mutual funds)
Types of investments:
BONDS: simply means you are lending your money to a company or government and they agree to pay you regular returns called 'coupons' and return your money at the expiration of the investment. Bonds are usually issued to raise capital for projects. In the financial sector, bonds are regarded as safe instruments when issued by reliable government and organisations, however note that there is an element of risk in this type of investment. The organisation or government may cease to exist, declare bankruptcy etc.
Bonds are issued at what we call a 'face value' at the primary market and resold to the public at the secondary market at prices higher or lower to that of the primary market which is driven by demand. If you buy a bond at a discount and wait till the maturity of the bond plus coupon paid periodically, you will definitely smile home however if you buy at a premium, you are at risk of loosing money if you don't sell off before maturity and price moves against you. You will not loose altogether because the price of a bond is set at face value of N100, £100 or $100 which means that what you get back at maturity is face value of your investment plus coupon paid before maturity. You can read up on this or contact me for further explanation.
STOCKS: simply means you own a part of the organisation you are investing in and has a right to vote etc. They are generally regarded as high risk. It works best when one invests when prices are low, earn dividends and exit when prices are high. If the amount invested is huge and the company is doing very when, annual dividends paid can be regarded as a regular source of income.
MUTUAL FUNDS: is a collection of stocks, bonds, money market, Assets, real estate etc. A professional manager gathers funds from a group of people to form a pool of funds and based on his expertise, invest it on their behalf. MF are high risk investment however if properly managed can give very high returns. Greed and desire for quick returns is one of the major cause of huge losses in this type of investment. Also it is generally assumed that MF does not pay dividend however if funds were invested in bond funds, customers should receive some dividend however minimal.
REAL ESTATE: if you ask my opinion, this is the longest form of investment. If you don't agree, let's take this ride together
I buy a plot of land in Lekki for N50M, I built and furnish tastefully with N30M total investment is N80M over a period of 3years minimum ( not for people that stole and built in 6months). If I decide to rent it out @ 4Mper annum, it will take me 20years to get my N100M back excluding repairs and bills.
Real Estate is an investment that can be transferred to generations and be a source of extra income
REITs: Real Estate Investment Trusts, or REITS, are another way to invest in real estate. Instead of buying your own property, you work with a company that earns profit from their own real estate investments.
Really, an REIT can be an ownership investment ora lending investment, depending on what type you buy. You can buy an REIT that gives you a share in the real estate itself. This would count as an ownership investment. But you could also invest in the mortgage of the real estate, which would make it a lending investment.When you buy a share of a REIT, you are essentially buying a physical asset with a long expected life span and potential for income through rent and property appreciation.
Venture Capital: This is money you give to a startup or small business, with the expectation that it will grow, and you'll get a return on that money. A lot of times, venture capitalists become partners in the company, owning part of its equity and getting a say in business decisions.
1)From my explanation above, I hope we will begin to see investment from a new light. It is not a quick money making machine or a dubbler. Investment is something you do over time with regular returns that we can term as another source of income for the long haul.
2)We should also note that you don't put money needed for immediate needs in investment. Poor people take all their life savings and invest which is regarded as high risk in the financial world however the rich take 10-30% of their earning and spread in various investments so whatever happens in any market does not sink them
3) Spread your risks
4) know your risk appetite before putting your money to any type of investment
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